Beating Competitors with High-Speed Innovation

In 2008, the French national railway company SNCF was facing a huge challenge: European passenger railways were about to be liberalized in 2010, and the company’s monopoly on the French—and European—market was about to end. To remain competitive, SNCF had to learn to innovate faster, better, and cheaper.

Over several decades, the company had built an excellent reputation for technical innovation. Its R&D engineers had famously developed increasingly sophisticated high-speed trains—Train à Grande Vitesse (TGV)—that continually smashed world speed records. In 2007, for example, a modified TGV train set a new world speed record of 574.8 kilometers an hour (357.2 mph). In 2008, however, SNCF’s leaders recognized that producing ever-faster TGV trains wouldn’t be enough to attract and retain value-conscious European customers, who would soon have their pick of train companies to choose from.

SNCF’s management came to realize that the TGV was like a smartphone: It was merely a platform. Just as a smartphone’s value depends on—and grows with—the availability and quality of its operating system, and of the apps that run on that system, the value of a high-speed train is dependent on the quality of services that shape the entire travel experience of its customers. To remain competitive in a liberalized European railway market, SNCF had to broaden its focus beyond technical innovation to also include service innovation.

The challenge was that SNCF’s R&D department—which designed the sophisticated TGVs—relied on rigorous product development processes that took five to 10 years from start to finish. Such long innovation cycles were not appropriate for quickly testing and launching new services in response to rapidly shifting market needs. A behemoth employing more than 180,000 employees in 120 countries, the company desperately needed a new innovation engine that would boost its agility and turn it into a nimble startup churning out new services in months, if not weeks.

With the help of the boutique consulting firm ExploLab, SNCF set up TGVLab, a small unit responsible for identifying, prioritizing, piloting, and validating innovative service ideas that carried a high risk but also held great potential for revenue growth in TGV. SNCF recruited Laurence Ternois to run TGVLab. Ternois had spent many years in leadership positions with fast-paced Internet companies like AOL and SNCF’s e-commerce business, SNCF Voyages. Hence, she was well positioned to carry out TGVLab’s ambitious mandate: experiment, validate, and launch new services within just six months.

In an interview, Ternois described TGVLab’s operating model to us. The unit is very lean: Endowed with a very modest budget, it is run by only two dedicated project managers. Each year, TGVLab carries out six to eight pilot projects. Every six months, the department’s managers meet with business unit heads at SNCF to identify and prioritize potential high-stakes projects for TGVLab. Business units assign a sponsor to each project selected for trial, and work closely with the TGVLab staff over a six-month period to pilot the project. Once they’re ready, the teams then present final results and recommendations (go or no go) to the appropriate business unit heads, who can commit to scaling up the project depending on the results of the pilot project.

Given TGVLab’s limited resources and time, Ternois says, it has no choice but to practice frugal innovation techniques: using rapid prototyping to design good-enough solutions, rather than over-engineered offerings, and co-creating these solutions iteratively with the active input of internal experts, customers, and a wide ecosystem of technology partners (including many tech startups). As a result, TGVLab is able to innovate faster, better, and cheaper on its own shoestring budget. It is also able to carry out risky projects to validate uncertain business models because, as Ternois puts it, “We are allowed to fail.” Indeed, TGVLab’s operating model embodies the Silicon Valley innovation philosophy of “fail early, fail fast, and fail often.” If TGVLab does the failing, SNCF can avoid the pitfalls.

Of the 20 pilot projects that TGVLab has carried out since its inception in 2008, half have been successfully implemented and scaled up by SNCF. These include smartphone-based productivity tools currently used by 10,000 TGV ticket inspectors and TGV Family, train cars reserved for families, with onboard entertainment provided by partners such as Disneyland Paris (which collaborated with SNCF at the launch of the service).

One successful project that we particularly liked for its frugal nature was an SMS-based system that enables train crews to communicate with hearing-deficient passengers. To accomplish this goal, SNCF was initially planning to refit all its TGV train cars with video monitors, a project that would have cost millions of euros and would have taken years to complete. Instead, the ingenious SMS-based system tested and proposed by TGVLab cost the company only a few hundred thousand euros and was implemented across its entire train fleet in just a few months.

We are eager to hear from you. Tell us what you think of SNCF’s decision to set up a small and separate unit to increase its speed of innovation while reducing its cost. Have you undertaken a similar approach within your organization? Please share your experience with implementing “fail early, fail fast, fail often” innovation principles.

Navi Radjou and Jaideep Prabhu are the coauthors, with Simone Ahuja, of the global bestseller Jugaad Innovation: Think Frugal, Be Flexible, Generate Breakthrough Growth (Jossey-Bass, 2012), which the Economist called “the most comprehensive book” on frugal innovation.

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